Internet Time Group

Leveraging the People Value Chain:

e-Business Necessity
by Jay Cross, Internet Time Group

Executive Summary ..........................................................................................1

Improving shareholder value .............................................................................2
The People Value Chain ...................................................................................3
Investing in people ............................................................................................4
It’s not training ...................................................................................................6
School’s Out ......................................................................................................7
What do learners want? ....................................................................................8
Suggestions.......................................................................................................9

Executive Summary

e-Businesses are being held back by a lack of people with the ability to execute.
Execution requires people who are innovative, fast, decisive, and focused.
Looking at investing in people holistically, as a “people value chain,” offers a
solution.

A radical example drives home the point. Imagine linking into a learning
environment that enabled your people to devote half their time to learning to do a
better job. The author suggests that gains in productivity, reduced attrition, easier
recruiting, greater loyalty, and a stronger team outweigh costs two to one.

Yesterday’s assets are tomorrow’s liabilities. Today’s knowledge becomes

tomorrow’s garbage. Distance is dead. Time itself has sped up. Cycles are faster.
Competitors sprout up like bamboo in the tropics. Everything happens on Internet
time.

Leaders have shifted their focus from static to dynamic, from physical to virtual,
from financial results to financial expectations, from machines to people, from
goods to services, from analytical to intuitive, and from institutions to individuals.

Knowledgeable, can-do people are the heart of competitive advantage. Keeping

them informed and inspired is vital. More than ever, people matter, for human
ingenuity is today’s scarce resource.

Just keeping up steals the time we need to plan for the future. We fall further
behind with every step forward. A prominent Silicon Valley CEO said, “We’re
racing down the highway at 150 mph, and we know there’s a brick wall up ahead

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somewhere.” That was two years ago. Today the speedometer is approaching
500 mph.

Let’s slow down for a few minutes to think about what makes an enterprise
successful and what you can do to improve your firm’s overall value.

Improving shareholder value

Shareholder value (AKA market capitalization) is a function of competitive
advantage, and organizations achieve it by focusing on core functions.
Everything else is an unnecessary distraction. This is the thesis convincingly
described by Geoffrey Moore in his recent book, Living on the Fault Line.1

When Moore makes his case, he describes a world turned upside down by the
Internet. Money, software, and service providers, once scarce, are now plentiful.
Today’s scarcities are time, talent, and management attention.

Scarce Resources

Industrial Age New Economy

Money Time
Software/computing Talent
Service providers Management attention

"Managing for shareholder value"

means focusing on strong,
sustainable competitive advantage.
Drivers of high-tech industries now
visit us all as the fever pitch of
Internet time drives a seismic fault2
under commerce of every stripe. All
businesses must concern
themselves with market segment
leadership, execution focus, and differentiated offerings.

How do you maintain that focus? By putting today’s new scarcities – time, talent,
and management attention -- to best use. Invest where you will get the highest
return. Concentrate time and talent on core activities. Outsource everything else.
(Your context is someone else’s core. ADP can process your payroll cheaper
than you can. SmartForce can train your people faster and better than you can.)

1
Living on the Fault Line by Geoffrey A. Moore, 288 pages, (May 2000) Harperbusiness; ISBN:
0887308880
2
The offices of Moore’s Chasm Group are about four miles from the San Andreas Fault. The
Redwood City headquarters of SmartForce is six miles from the San Andreas. Internet Time
Group is three blocks from the Hayward Fault. Silicon Valley knows earthquake talk.

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Talent and attention relate to the human ecology of your organization. Focusing
on core boils down to leveraging your human capital value chain -- getting the
right people and getting the most from them.

In the new economy, the yardsticks used by Warren Buffett and his mentor,
Benjamin Graham, no longer jive with equity valuations. Today what is off the
balance sheet is often worth more than what is on it.

Sixteen months ago, Forbes joined the search for new yardsticks, saying:

“Intellectual capital has yet to be adequately measured. Intangible assets

live up to their name. They are typically amorphous, subjective, and hard
to pin down.3

What really counts?

An extensive number-crunching exercise4 isolated these as the most important

non-financial determinants of value:

1. Innovation
2. Ability to Attract Talented Employees
3. Alliances
4. Quality of Major Processes, Products, Or Services

People skills make all the difference. Isn’t it ironic that in the Internet age,
technology doesn’t have any impact on valuation?

Forbes/E&Y confirms that leveraging your people is the key to shareholder

return.

The People Value Chain

For decades, executives have said that people are their most important assets.
What’s different now is that they mean it. Merrill Lynch makes a convincing
argument that:

At no previous time has human capital been so important, meaning

finding, developing, and retaining knowledge workers will be mission-
critical functions – and high growth sectors – in the new economy.”5

3
Forbes ASAP, April 3, 2000
4
See Introducing the new Value Creation Index, Forbes ASAP, April 3, 2000.
Statistically, the real intellectual-capital drivers are not what most people think Ernst & Young
Center for Business Innovation and the Wharton Research Program on Value Creation in
Organizations. By Geoff Baum, Chris Ittner, David Larcker, Jonathan Low, Tony Siesfeld, and
Michael S. Malone
5
Merrill Lynch, The Knowledge Web, May 2000.

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The average Fortune 500 industrial has a market capitalization of about

$600,000 per employee. The average public company in Silicon Valley has a
market cap of $38,000,000 per employee. Are high-tech employees worth sixty
times their manufacturing counterparts? The market seems to think so.

Are we investing sixty times more…or even ten times more…in our people? No.
Why not? For the last half-century, senior managers have taken people issues
personally. Frustrated by irascible human nature and befuddled by the fact that
they are people too, executives wring their hands over their lack of control in their
organizations. They flip a switch at the top of the company but the lights don’t go
on below. Organizations cry for better circuitry.

Current doesn’t flow if any portion of a circuit is broken. That’s why executives
need to rethink human resources holistically, looking at all the factors that link
people to value production. The elements of this “people value chain” are
interrelated. Changing one area impacts the others.

The People Value Chain

Managers must approach people issues systematically. A dollar spent on

assessment may save three dollars in retention. A dollar invested in training may
lower recruiting costs by five times that amount. Better-trained people produce
superior results, increasing compensation, and lowering turnover. Word gets out,
and top talent begins pursuing the company rather than the other way around.

The objective is to create an environment that empowers individuals by

networking them and giving them the tools to solve problems. Hierarchy is dead.
Everyone now needs to make decisions on the basis of a gut understanding of
the goals of the business. This replaces bloated bureaucracy with dedicated,
sure-footed teams. Lights go on before the switch is thrown.

We used to think of people as costs. The leaner the payroll, the better the
business, right? An urban legend of the early sixties told of a factory owner who
replaced cantankerous, striking workers with robots. He gleefully toured his
efficient, people-free factory. Imagine this guy trying to adapt to Internet time,
where some products seem to have the lifespan of a fruit fly.

People are assets we invest in to make them more valuable.

Investing in people
The issue is no longer how little can we spend on people. It’s how much.

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Companies looking for loyal workers who take orders, understand discipline, and
put the welfare of the company above their own will be disappointed. Workers
like this no longer exist.

Today’s workers are out for themselves. Not selfishly but realistically. Free
agents. They recognize that their careers will last many times longer than their
employer. Fast Company exhorts them to look out for “Brand You.” Tom Peters
encourages everyone to consider herself a separate business. Our market-driven
world drives people to increase their personal marketability.

While some decry high turnover, other companies turn the mindset of the new
recruit to their advantage. After all, they want innovators, not followers. They
prefer self-starters who will do what’s right rather than wait for instructions. They
need people more concerned with getting the job done than punching the clock.

The wise approach makes the interests of the worker and the needs of the
organization congruent. Both make the worker a more valuable asset.

“Internet Age companies rely on the initiative and smarts of individual employees
to foster decisions that are closer to the customer and therefore more responsive
to the market. The ultimate goal is flexibility, an open mind, and transparency of
organization.”6

For too long, we’ve looked at investing in people through the wrong end of the
telescope. Instead of trying to keep the cost of training and development down,
what if we were to try to keep it up?

How much time should a company invest in training?. The old rule said one week
a year on company time, plus a few professional conferences here and there. For
managers, perhaps a trip back to campus to master new techniques or rev up the
spirit. For techies, the company footed the bill for technical training but workers
had to do most of it on their own time. Maybe throw in an offsite bootcamp to
learn a new language.

This notion of a week or two of annual training, like many other rules, is without
foundation. It reminds me of the saying that 2% is a good response to a mail
campaign, as if there’s some sort of generic mail campaign where the offer
makes no difference.

What might happen if an enterprise adopted a no-cap learning policy? Learn

whatever you want, however much you want. If you’re growing into a new area of
capability, you may spend half your time learning.

Recruits would flock to such a company. Its investment in their future is clear.
How would you pay for it all? Use the money now spent on recruiters, finders’
6
Jorma Ollila, CEO of Nokia

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fees, bidding wars for scarce talent, signing bonuses, and other incentives that
coerce someone to join your organization rather than the company down the
street.

The people joining you would be the curious, go-getter learners who want to
better themselves. Why would you want anyone else?

Retention would soar. Why leave a company that makes you more valuable the
longer you stay? A solid learning organization fosters a sense of belonging.
Christopher Bartlett puts it very well:

“People engaged in learning and creating the future together can move
beyond the old structure, strategy, and systems philosophy of running the
business. Instead, everyone can focus on a common goal, no longer a
mere contractual employee of an economic entity so much as a committed
employee of a purposeful organization.” 7

Picture two people. Over the last six years, one person has learned your culture,
gotten to know the people in your organization, understands your competitive
positioning, knows the territory and has figured out the way to get things done in
your shop. The other is a new hire who doesn’t know who does what, is unclear
about the dynamics of your market, and hasn’t figured out how to program her
phone. Put these two in a competition to see who can come up with the best
ideas and get the most accomplished. It’s no contest. The person who’s been
around a while is four or five times more productive than the new hire – yet they
probably cost about the same in salary. It would be doubly productive to retain
the long-term employee by offering 20 weeks of learning a year.

To attract and retain the great people, create a place to belong, not just a place
to work. And how do you tie those middle elements of the human value chain
together, the steps of assess, learn, test, and certify? The coming generation e-
Learning environments do it for you.

It’s not training

Training has earned a bad reputation in executive management. Get over it. Here
we’re talking about the continuous, integrated, systematic flavor of development
called e-Learning.

In addition to traditional learning, e-Learning encompasses keeping informed,

honing existing skills, certifying expertise, building working relationships, forming
teams, discovering what you don’t know you don’t know, researching new areas,
staying ahead of the competition, improving the quality of decision-making,
smoothing down one’s individual rough edges, grabbing information on the fly,

7
Organizational Overhaul with Christopher Bartlett, an interview in LiNE Zine, www.linezine.com

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planning one’s development path, testing one’s knowledge, capturing and

sharing intellectual capital, attracting new recruits, and retaining the people
already on board. e-Learning plays a role in every step of the human value
chain8:

The returns on leveraging the human value chain are staggering. On the factory
floor, if you could double the output of a particular machine, you’d be hailed as a
hero. These days, we’re working with humans instead of machines. And
leveraging a truly with-it knowledge worker can produce hundred-fold gains
rather than a paltry 100%.

A cornerstone of e-Business is reorganizing to focus on the customer. The

People Value Chain is an e-Business process. So, to optimize the return on your
investment in people, treat the employees, upstream suppliers, and downstream
users as customers.

Herein lies the promise of e-Learning. You may have heard that in e-Learning,
“Content is king.” That’s wrong. The learner is king.

e-Learning doesn’t replace training. Rather, it puts training and instruction under
the same umbrella as knowledge management, collaboration, performance
support, assessment, competency management, and other activities. e-Learning
helps integrate people functions across the enterprise.

School’s Out
We’re so accustomed to the school model, with an authority figure at the front of
the classroom spoon-feeding us the “right stuff,” that it’s difficult to appreciate
what being “learner-centric” really entails.

David Garvin tells of a professor at West Point9 who, having stated the precise
number of troops in Korea in 1954, was corrected by a cadet doing some real-
time fact-checking on the net with his laptop. At first, the professor was miffed to
be corrected. Then he “got it.” Now he challenges the class to provide all the
details to support his lectures.

The training most of us grew up with was class of the instructor, by the instructor,
and for the instructor. Think back. Who decided what would be on the test?

Collaboration was discouraged. Old ideas were more highly valued than
innovation. The curriculum set the limits of what was to be learned.

It’s academic.

8
Ibid, p. 23
9
David Garvin, Learning in Action, Harvard Business School Press, 2000.

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That’s fast becoming history.

e-Learning focuses on the learner. A network of libraries, collaboration, the

Internet, a peer network, virtual classes and seminars, and a learning
management system to knit it all together are joined by the converging
technologies of the interactive web, real-time chat and messaging, conferencing,
and email. e-Learning works because it listens to the learners, learns about their
needs, and then answers their questions individually and in person. It’s a case of
customers driving the development of new products instead of the boys in the
lab.

In the past, some corporations planned training in a fashion similar to Stalinist

Central Planning. No, I don’t mean purges and Siberia. Rather, I refer to plans
created by bureaucrats for a system whose dynamics they did not understand.

The result for the Soviet Union? Shortages. Cheating the system. Unsatisfied
demands. Extremely low productivity. And sometimes nothing to eat but potatoes
grown in the back yard.

The result for corporations? Workers who lack the skills to perform their jobs.
Workshops no one wants to attend. Coveted workshops not available. Low
productivity. And sometimes nothing but memos to help the sales force learn a
new product.

What do learners want?

Empowering the learner puts individual self-interest in charge of making
decisions about what to learn. Training managers no longer have to guess what
people need to learn.

What does the learning customer want? Not training. If people could take a smart
pill and magically know everything they needed without one more workshop or
web page pill-makers would replace trainers overnight.. People don’t want
training; they want the skills and knowledge to perform. They want it on their
schedule. Less is more. Chunks are better than whole days or even weeks at a
time. They want choice and convenience. They want a meaningful learning
journey, not a one-shot training fix.

Today’s learners want a satisfying learning experience. They want to be fully

engaged.

Giving people the freedom to choose what and how they learn brings many of the
economic benefits and efficiencies of e-Business

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e-Learning provides these benefits: 10.

• learner relationship management integrated into career pathing and HR

planning
• knowledge management geared to individual interests and job
requirements
• self-service e-administration in lieu of forms, copies of forms, and re-entry
of forms
• collaboration in learning that transfers to collaboration on the job
• individualized e-procurement from a central online learning store
• mass customization to personalize learning but with economies of scale
• reducing the time to disseminate new product knowledge, processes,
competitive information, and customer needs from months to minutes.

e-Learning eliminates e-Business bottlenecks by connecting business processes,

information, and people.

Let’s sum up.

Suggestions

Treat your people like customers. Make it easy for them to learn, to join, to
take part. Sell them on the idea. Build lasting relationships with all learners, be
they outside customers, suppliers, or employees. Make your Learning
Management System perform like your CRM system.

Speed matters. Getting a quick solution is more important than finding the
perfect solution. The key is to get a solution that works. Now. Weigh the trade-off
of time vs. cost toward time by considering the cost of lost opportunity by not
acting sooner.

Focus on core. Unless you are in the e-Learning business, e-Learning is not
your core. Hand it off to a reliable partner, but be certain to choose a partner you
can trust to stick around.

Nothing is forever. Listen carefully to learners so you’ll be prepared for the

inevitable changes that will come. Maintain flexibility by avoiding standalone,
proprietary solutions. Choose easily networked, linked, standards-based
structures you can grow with.

Make decisions for your entire b-web. Don’t take a piecemeal approach to an
enterprise-wide issue. Put everyone in the picture. On the clue train,11 real talk
forces out high-fallutin’ buzzwords, and substance trumps fads.
10
. Here we’re talking about holistic, integrated approaches to e-Learning, as exemplified by
3
SmartForce e . See the companion white paper Designing the Next Generation of e-Learning.

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Leverage your entire people value chain. Evaluate the impact of e-Learning on
your workforce, suppliers, and customers.

Jay Cross has been passionate about harnessing technology to improve adult
learning since the sixties. Fresh out of college, he sold mainframes the size of
Chevy Suburbans. Later, he designed the University of Phoenix's first business
degree program. He has managed several software startups and is the former
president of MegaMedia WorldWide. Jay advised CBT Systems during its
transition to SmartForce, the eLearning Company, and helped Cisco e-Learning
Partners plan, implement, and market their initial web-based certification
programs. Jay serves as CEO of eLearning Forum, a 450-member think tank and
advocacy group in Silicon Valley. He is a graduate of Princeton University and
Harvard Business School.

Internet Time Group provides hands-on advice on implementing eLearning,

developing information architectures, advising management, and accelerating
sales. Jay and his team also provide out-of-the-box, results-oriented marketing
advice to eLearning companies. Five hundred people visit
www.InternetTime.com for eLearning information every day.

11
The Cluetrain Manifesto calls for honest, clear, personal communication in place of corporate
bafflegab and buzzwords. www.cluetrain.com

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